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Cape Caribbean (Antigua) Ltd recently filed a claim against the Royal Bank of Canada alleging a breach of duty that resulted in the loss of over US$100,000 through a fraudulent wire transfer.
The court documents reveal that the claimants claimed that a wire transaction worth EC$322,299.19 was fraudulently debited from their US account with the bank in February 2019 and sent to a Chinese trading company, Qian Wan Li (HK) Ltd.
Cape Caribbean claimed that only two authorized officers were permitted to access their US current account held at the bank, which were its director James Flynn and Luis Rios.
They alleged that unknown persons hacked an email address authorized for transactions, impersonating Michael Campbell, an authorized representative for the company, and forged Rios’ signature to authorize the wire transfer.
The company argued that it was the bank’s responsibility to verify the wire transfer request via a telephone call to any of the company’s principals or signatories to the account, and that RBC failed to do so.
However, RBC counterclaimed that Cape Caribbean did not provide clear evidence that their email address was hacked.
They also claimed that the company “was bound to take all necessary action to ensure that… appropriate security was in place for its email addresses so as to prevent the unauthorized transmission of email instructions” in line with the service agreement between the two entities.
The bank deemed the email instructions to be genuine at face value and believed they had no obligation to call the company to confirm the transaction.
The court dismissed both sides’ claims on the basis that the company failed to bring in an expert witness to prove that the bank had been negligent in line with standard banking practices.
The court also found that requiring the bank to have a “call-back requirement on all electronic transactions would be unreasonable and unduly burdensome on the bank, considering their high daily transaction volume and the contractual duty to pay”.
Overall, it is important for both companies and banks to take necessary precautions to ensure that fraudulent activities are prevented.
With the right measures in place, businesses can avoid financial losses and banks can maintain their reputation as trustworthy financial institutions.